Weekend Newsletter for May 8, 2005
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Weekend Newsletter for
May 8, 2005
Table Of Contents 1) MARKET SUMMARY 2) PRE-SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY
http://ichart.yahoo.com/v?s=^ixic”> http://ichart.yahoo.com/v?s=^dji”>
http://www.investmenthouse.com/1splitnotification.htm”>Stock Split Notices http://www.investmenthouse.com/1questions.htm”>Investing Q & As http://www.investmenthouse.com/1glossary.htm”>Glossary
1) MARKET SUMMARY > >From “The Daily” at InvestmentHouse.com
More jobs? Great news! Well, maybe not.
– Market jumps on strong jobs report, has second thoughts, closes out week quietly.
– Jobs data surges past expectations, puts emphasis back on what Fed will do.
– Tax revenues surge, indicating the economy is stronger than most think.
– Pessimism about ability to continue move higher rises, improving odds rally will continue.
– Were jobs too strong for the Fed? Facing the same old struggle ahead, but near term market still set to rebound.
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Market Summary (continued)
There is tension in the market that is distorting what is good news and what is bad news. Typically, prosperity is celebrated by Americans and the market. Problem is, this is one of those atypical times when the Fed is actively raising rates to take on inflation and fight prosperity. The market wants it to end as soon as possible because the Fed acts as a governor, an inhibitor on the economy and thus the market.
Indeed, it is often the catalyst of serious economic problems. In eight of the last ten rate hiking campaigns the economy subsequently tanked into recession. The Fed’s most recent triumph was the 2000 crash, yet many still bow to the Federal Reserve building when they walk by with some Manson-like belief that Greenspan and company actually saved us from disaster. With trillions of dollars in lost retirement savings as a result, it is fairly incomprehensible that some believe the outcome was a good thing. If Greenspan wants another job after the Fed he could always work as a weatherman. Being right 20% of the time would make him a giant in that field.
Thus, a surge in non-farm payrolls and upward revisions to February and March by a net 100K had little impact in the end. Sure futures jumped on the news, but they, like the market later, backed off after the initial move, an indication of some of the undercurrents about just what this news meant. The market rallied early, but the initial surge in the first 15 minutes was the zenith. It was all downhill after that.
http://www.investmenthouse.com/1weekendmarketsummary.htm”>Read “The Daily” Entire Weekend Summary
Here’s a trade from “The Daily” and insights into our trading strategy:
Chart by http://www.stockcharts.com”>StockCharts.com
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http://investmenthouse.com/quote/stkquote.php3?smbl=
UTHR”>
UTHR (United Therapeutics Corp.)
http://finance.yahoo.com/q/pr?s=uthr”>Company Profile
UTHR is a leader, and we own it long term and make short term trades with it as well. That is the beauty of dealing with leaders: they give you many reliable, steady ways to make money, really ramping up your overall returns. After a nice 4.5 month flat base it broke out again in mid-April. We were anticipating that move and picked up some more positions. We also knew it was likely to test that move, and sure enough it did, easing back on lower volume at the end of the month, holding the 18 day EMA. That level is a key support level on breakouts, and when a solid breakout holds there we are ready to move in. Indeed, it is one of our favorite entry points because it ‘proves up’ the breakout. Well, when it started back up we moved in on May 3 with some August $50 strike call options at $4.20. With a 51 delta that would give us a good gain as it continued the breakout move. The timing was right as UTHR continued to rally Wednesday and Thursday as well. It started to slow some Friday so we took half of our position off the table, a nice 45% gain. We can live with that for 4 days in the market. We are letting the rest ride and will look for a test of the 10 day EMA to hold and send the stock higher.
http://www.investmenthouse.com/1daily1.htm”>Learn more about “The Daily” with Stock Picks! – Issued 5 Times Per Week
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2) STOCK SPLITS Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays: 1) pre-announcement: where we forecast an upcoming split prior to the company making the announcement;2) pre-split: these plays are made in the days leading up to the actual split day; and 3) post-split plays: plays made after the actual stock split where the stock is showing continued or renewed strength. We play pre-split plays as short-term plays. We get in when the technical indicators show us things look right, grab as much as we can, and get out, always being conscious of resistance and support. These stocks are highly volatile at this time, and can turn on you quickly. Don’t let good profits disappear. Watch for turns, especially when a stock trades in a wide range and finishes off its high. That is a sign these stocks often give you that they are running out of steam. We usually get out and ask questions later. We can always get back in. We like to play in the money calls, preferably two strike prices in the money as this usually gives us a greater delta (the percent an option will mover versus the stock’s movement). We prefer deltas of 75 or better. This means if the stock moves 1 point, the option should move three-fourths of that point. That means up or down. Remember, wait to see the stock start to move up. Don’t just blindly make a play and don’t try to guess tops and bottoms. We can look at indicators to give us a clue as to what will happen, but we need the stock to confirm it for us. http://www.investmenthouse.com/1stocksplits1.htm” target=”_top”>http://www.investmenthouse.com/images2/cnbc.gif” width=”39″ height=”31″ border=”0″ alt=”CNBC Interview”>
Listen to Stock Split Report Editor Jon Johnson’sstock split interview on CNBC-TV! [ http://www.investmenthouse2.com/cntdir.asp?name=JonJohnson-B” target=”_new”>Broadband | http://www.investmenthouse2.com/cntdir.asp?name=JonJohnson-D” target=”_new”>Dial-up ]
Here’s a pre-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
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http://investmenthouse.com/quote/stkquote.php3?smbl=
MCO”>
MCO (Moodys Corp.–$84.2; -0.8; optionable): Financial rating services. Splits 2:1 on 5-19-2005.
http://finance.yahoo.com/q/pr?s=mco”>Company Profile
STATUS: Pre-split. MCO has set up something of a cup with handle the past 11 weeks, breaking higher Wednesday and Thursday on some lower but still above average volume. Positive 3 to 2 accumulation (3 up price weeks on rising volume to 2 down price weeks on rising volume) shows net money moving into the stock during the consolidation. After a strong volume move Thursday started the break higher, Friday MCO faded on low volume, giving back that gain. This little low volume pullback to end the week leaves MCO in good position to continue the pre-split run. Using options on this play to leverage our gain over a shorter stock move.
Volume: 567.1K Avg Volume: 665.747K
BUY POINT: $84.75 Volume=800K Target=$87.95 Stop=$83.88
POSITION: MCO HQ – Aug. $85c (51 delta).
http://www.investmenthouse.com/1stocksplits1.htm”>Learn more about our Stock Split Report – Issued 5 Times Per Week
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Chart by http://www.stockcharts.com”>StockCharts.com
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3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
ADBE”>
ADBE (Adobe)
http://finance.yahoo.com/q/pr?s=adbe”>Company Profile
In this market you have to be ready and able to take what it is giving. Some stocks are making good upside moves and others are selling. ADBE was one of those stocks in trouble, gapping down hard in mid-April. After such a move we look for opportunities to move in and take advantage of the weakness. That typically is a lower volume rebound to test resistance and then a roll back over. That is precisely what ADBE did. It rallied back up to the 10 day EMA; it took a week so we had to be patient and let it make the move. When we saw it roll over at the 10 day EMA on April 26 on rising volume we knew it was ripe for the downside. We moved in with June $60 strike puts as they gave us the right combination of price ($3.20) and delta to give us a nice gain down to the target. We were not looking for a major plunge, just a move back down to the 200 day SMA where it would likely find support. That move, however, would land us a nice gain. Well, ADBE sold lower, tried a quick rebound but again stalled at the 10 day EMA, making a lower high. We didn’t panic, just let the weakness work for us. It plunged lower to the 200 day SMA the nest session. We stepped in and sold the puts for $4.80, taking our 50% gain, and stepped back out. Not bad for just 5 days in the market. ADBE is still holding the 200 day SMA, and may set up for an upside bounce. If it does we may play that as well. You have to take what the market gives.
http://www.investmenthouse.com/1tech1.htm”>Learn more about our Technical Traders Report – Issued 5 Times Per Week Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/cmcsm.gif” width=”360″ height=”208″ border=”1″>
4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CMC”>
CMC – Commercial Metals Co. is currently trading at $26.07. The June $25 Calls (CMCFE) are trading at $2.40. That provides a return of about 6% if CMC is above $25 on expiration Friday in June.
http://finance.yahoo.com/q/pr?s=cmc”>Company Profile
http://www.investmenthouse.com/1coveredcalls1.htm”>Learn more about our Covered Call Tables – 8 Tables Updated 5 Times Per Week
* * * SCOTTRADE * * *
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The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP., or Split Ventures, Ltd. This information is not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on the related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites.
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